By Sam Boughedda
RBC Capital analyst Steven Shemesh maintained an Outperform rating and $73 price target on Chewy (NYSE:CHWY) but said he is cautious ahead of the company's earnings release Wednesday after the close.
The analyst said that while his checks suggest category dynamics remain favorable, supply chain disruptions will likely continue to serve as a drag on the top-line.
He added that the company's retail peers are reporting higher than expected labor/transportation costs.
"Of the six companies we cover that have reported so far this earnings season, four have missed consensus expectations on adj. Operating margins. Freight/transportation and labor have been the most-cited headwinds. We view this as particularly concerning given that CHWY has struggled with cost inflation over the last few quarters," stated Shemesh.
However, the analyst acknowledged that Chewy's labor situation is improving, and the Pet category has historically proven to be "quite resilient to macro conditions."
"Our channel work leads us to believe this dynamic held steady throughout 1Q. We expect top-line to accelerate in 2H as supply chain disruption eases."
Chewy stock fell more than 7% in Tuesday’s session.